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Why Quotas Might Work Better Than Tariffs

By Jelani Rucker
on September 12, 2018

There’s been a lot of talk about tariffs in the news lately. While many in the steel industry agree the 25% tariff on steel imports has had a positive impact on the domestic steel industry, some American companies that buy steel take issue with the increase in prices. Likewise, some other countries have pushed back on the tariffs and have agreed to quotas instead. But what is the difference between a tariff and a quota, and which one is really better for the domestic steel industry? Read on for our stance on the issue.

Tariffs Tax Imports
Tariffs are taxes on goods imported into America. These goods then take on a higher price in the American market — which also drives up the price of the equivalent domestic-made goods. As a result, demand for domestic-made goods increases.

Quotas Limit Imports
Quotas are limits on the number of goods imported into America within a given time period. Since quotas restrict supply, they drive up the prices of both foreign and domestic goods. Likewise, both foreign and domestic producers benefit.

Quotas Facilitate Fair Trade
At Zekelman Industries, the company that launched the American Metal initiative, we believe quotas are the better way to ensure fair trade. Quotas allow some imports to enter our market without jeopardizing domestic producers. This way, American end users always get the products they need, even when domestic manufacturers don’t have enough capacity to produce them. And because domestic manufacturers know the volume of imports is limited, they can invest in capacity increases with confidence. Plus, quotas are not impacted by currency swings and other macroeconomic factors that can make tariffs ineffective.

From our standpoint, quotas spare all producers from unfair competition, creating a more even playing field. That’s the foundation we need for fair trade.